Globalization, Privatization and Free Market Economy

By C. P. Rao | Go to book overview

CHAPTER 7
Economic Liberalization and Foreign Direct Investment in Developing Countries: Japanese Investments in India and China

JAIDEEP ANAND AND ANDREW DELIOS

Foreign direct investment ( FDI) into developing countries has increased rapidly in recent years. Some of these investments have been motivated by the large untapped markets of these countries, while others have been motivated by access to resident assets like low-cost labor. This growth in FDI has coincided with decentralization in Japanese manufacturing. Consequently, Japanese multinational enterprises (MNEs) have become the dominant investors in the countries of South, Southeast and East Asia. We analyze patterns of Japanese FDI and MNE strategies and find that Japanese FDI into India is more frequently motivated by market access and is part of a multidomestic strategy. Japanese entries into China more frequently tend to be motivated by the desire to access location-specific resources and are part of a global strategy. We conclude that MNEs respond to country- specific and industry-specific factors, as is visible in their investment and organizational strategies.

Foreign direct investment ( FDI) into developing countries grew rapidly in the late 1980s and first half of the 1990s. In 1994, FDI inflows to developing countries reached $84 billion, or 37 percent of worldwide FDI. The countries of South, Southeast and East Asia have accounted for the bulk of this increase in FDI to developing countries. Approximately 70 percent of developing country FDI ($61 billion) was invested in the countries of this region ( UNCTAD, 1995). China is the largest recipient of FDI among developing countries and the second largest recipient of FDI in the world. More than half of the FDI invested in the developing countries of Asia is found in China ($34 billion). In 1995 these trends were expected to continue as developing country inflows were projected to increase to $90 billion ( UNCTAD, 1995). Similarly, FDI into India, albeit from a low base, has been growing rapidly, as the following figures illustrate:

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